Slide 1: Investor briefing: Half year results to 30 September 2015
For personal use only Investor briefing Half year results to 30 September 2015 1 5 NOVEMBER 2015
Slide 2: Important notice
Important notice For personal use only This presentation is given on behalf of Xero Limited. (Company number NZ 1830488, AU ARBN 160661183 NZX/ASX:XRO) Information in this presentation: • is for general information purposes only, and is not an offer or invitation for subscription, purchase, or recomm
Slide 3: Agenda
CEO update For personal use only Financial update Agenda Scorecard Outlook Q&A 3
Slide 4: CEO update
For personal use only CEO update Rod Drury Chief Executive, Founder 4
Slide 5: Global small business platform and ecosystem
For personal use only Global small business platform and ecosystem with over 600,000 subscribers today 5
Slide 6: Experienced leadership
Sankar Narayan Chief Financial Officer Victoria Crone For personal use only NZ Managing Director Andy Lark Chief Marketing Officer Russ Fujioka Experienced Rod Drury Angus Norton US President Chief Executive, leadership Founder Chief Product Officer Chris Ridd AU Managing Director Duncan Ritchie Chief Pla
Slide 7: Team of 1,300+ worldwide
Team of 1,300+ worldwide For personal use only North United Rest of New America Kingdom World Australia Zealand 83 GTM 62 GTM 11 GTM 93 GTM 35 GTM 174 GLOBAL 64 GLOBAL 0 GLOBAL 119 GLOBAL 671 GLOBAL GTM = Go to Market (Sales and Marketing for each region) 7 Global = Product Development, Customer Exp
Slide 8: 593,000 paying global subscribers
$218M For personal use only Annualised Committed Monthly Revenue North United Rest of New America Kingdom World Australia Zealand 47k SUBSCRIBERS 102k SUBSCRIBERS 19k SUBSCRIBERS 262k SUBSCRIBERS 163k SUBSCRIBERS 593,000 paying global subscribers* 8 *As at 30 September 2015
Slide 9: International markets: meaningful with fast growth
International ACMR growth For personal use only markets: Meaningful $220M with fast growth 32% $165M International ACMR expanded to 32% of Group ACMR $110M Operating revenue for the Group has grown by 71% YoY with ANZ growing by 59% YoY and International growing by 110% YoY 68% $55M Group subscripti
Slide 10: Achieving revenue milestones
Achieving revenue milestones – $30 at a time* For personal use only Salesforce 3 6 10 WorkDay 5 7 6 8 ServiceNow 6 8 Zendesk 6 8 NetSuite 8 10 MINDBODY 11 YRS TO $US 20M YRS TO $US 100M YRS TO $US 1B *$NZ 30 average monthly ARPU. Years to each milestone determined by taking the difference between the
Slide 11: Financial update
For personal use only Financial update Sankar Narayan Chief Financial Officer 11
Slide 12: Key financial achievements
Key financial achievements For personal use only Australia and New Zealand delivering positive contribution Group International – investing ANZ – contributing 71% YoY operating revenue growth 110% YoY operating revenue growth 59% YoY operating revenue growth Average revenue per subscriber Average re
Slide 13: Financial performance
H1 FY15 H2 FY15 H1 FY16 Financial performance ($000s) ($000s) ($000s) Total revenue 54,295 69,555 92,864 For personal use only Gross margins have improved with efficiencies Cost of revenues 18,016 19,387 24,497 and economies of scale Gross profit 36,279 50,168 68,367 Continued investment in distributi
Slide 14: Improving gross margins at scale
Improving gross Gross margin For personal use only margins at scale $70M 74% Demonstrating ability to drive material improvements in gross margin 72% Driven by operating efficiencies and economies of scale 67% $35M Opportunities to further improve gross margin $0M H1 FY15 H2 FY15 H1 FY16 14
Slide 15: Efficient subscriber acquisition
Efficient subscriber CAC months* For personal use only acquisition 15 Increase in CAC months in H2 FY15 driven by investments in distribution channels in international markets CAC months reduced in H1 FY16 reflecting improved efficiency 8 Continued focus to further improve efficiency 0 H1 FY15 H2 FY15 H1
Slide 16: Product investment
Product investment Product costs* as percentage of revenue For personal use only Substantially increased product team over the last 18 months 42% Focus on improving scale efficiency and effectiveness of product investment effort 28% Investing in new products and services to drive future ARPU and growth
Slide 17: Driving lifetime value
Driving lifetime value Total lifetime value* For personal use only In SaaS current period expenditure provides $1,100M long-term value gain $1B Future lifetime value of existing subscribers now exceeds $1bn, $250m higher than six months ago International subscribers represent 21% of $550M total LTV
Slide 18: Contribution margins improving
Contribution margins ANZ contribution For personal use only 28% improving 14% ANZ contribution has improved over the period in dollar terms and almost doubled as a percentage of operating revenue. Investment 0% has continued to drive operating revenue H1FY14 H2FY14 H1FY15 H2FY15 H1FY16 growth of 59%
Slide 19: Increasingly funding growth with strong revenues
Increasingly funding REVENUES CASH OUTFLOW For personal use only growth with strong $100M revenues $75M Funding greater proportion of growth through revenue receipts $50M Operating and investing cash flows stabilising, with Q2 cash usage a reduction from the prior four quarters $25M Total cash movem
Slide 20: Australia and New Zealand
$149M ACMR Australia and New Zealand $65M operating revenue For personal use only 59% operating revenue growth while sustaining premium cloud offering and ARPU Subscriber growth of 53% New Zealand continued growth with expansion into farming and executed successful price rise 425,000+ subscribers Ban
Slide 21: International
$70M ACMR International $28M operating revenue (+110%) For personal use only UK leader • First small business cloud accounting solution to surpass 100,000 paying subscribers • Bank partnerships including four of five major banks directly connected 168,000 subscribers (+79%) • Joint accounting and pa
Slide 22: Xero country subscriber velocity
Xero country subscriber velocity North America AU For personal use only North America market entry ahead of all NZ other markets UK NORTH AMERICA 47,000 paying subscribers, growth of 114% ROW As our profile grows, accounting partners TIME coming on stream as in other markets SaaS B2B subscriber comp
Slide 23: Scorecard
For personal use only Scorecard Rod Drury Chief Executive, Founder 23
Slide 24: SaaS scorecard
SaaS scorecard For personal use only Common evaluation criteria for building the world’s leading SaaS business We believe these matter too 1 Grow customers worldwide 5 Acquire customers economically at scale 2 Win worldwide with the ecosystem 6 Price for value 3 Build an open platform network 7 Gene
Slide 25: Grow customers worldwide
1 Grow customers New adds to franchise last reported 12 months* For personal use only worldwide 240,000 Globally added 222,000 subscribers over twelve months across 180+ countries Achieving growth at low acquisition 160,000 cost Defending our position and premium in very competitive markets 80,000 0
Slide 26: Win worldwide with the ecosystem
2 Win worldwide with the ecosystem For personal use only Deliver customer benefit Customer base growth LTV to CAC improvement Beautiful software, advice and Over 593,000 paying subscribers LTV increased to $1,805 connections on a single platform 180+ countries Retention improved to 84% Over 500,000
Slide 27: Relationships deepened / announced in last months
Relationships deepened / announced in last 6 months For personal use only Channel Business Financial Web Xero integrations Practice 27
Slide 28: Build an open platform network
3 Build an open platform network For personal use only One codebase Built to scale Open for all developers 100% cloud native code base since 99.99% availability Open APIs designed from day one day one loved by thousands developers $300 billion + transactions processed Users in over 180 countries ove
Slide 29: Product innovation and velocity
4 Product innovation and velocity For personal use only Innovation for all Increasing ecosystem participants development velocity Setting industry agenda for next Delivered hundreds of updates and generation accounting features more than 40 major new features Helping partners to reach our Significan
Slide 30: Product investment
Product investment Total R&D spend as percentage of revenue vs competitors* For personal use only Enormous scope for future additional services and value creation 60% The second generation SaaS platforms must take advantage of commodity innovation in PaaS Efficiency in acquisition is allowing us to in
Slide 31: Acquire customers economically at scale
5 Acquire customers Being a great product & network effects platform company For personal use only economically at scale Power to acquire subscribers at scale from: • Online channel automation • Flywheel between accounting partner and small business $ ACQUISITION COST PER SUBSCRIBER • Word of mouth f
Slide 32: Price for value
6 Price for value Average revenue per user For personal use only Maintaining high growth and premium value for accounting $50 Successfully executed price increases Quality products experience minimal Xero Market pricing elasticity – have defended Xero’s strong value Incumbents lowering against lower
Slide 33: Generate long-term value and margins
7 Generate long-term value and margins For personal use only ( LTV = ARPU * average lifetime * current gross margin ) ARPU Gross margin Lifetime Lifetime value ANZ $29.20 73% 97 months $2,069 Group $30.70 74% 80 months $1,805 Since H1 FY 2015 Gross margin was Group lifetime flat from Group LTV incre
Slide 34: Build globally loved brand
8 Build globally loved brand For personal use only Great companies are defined by the profound enthusiasm of their customers @Xero is just fantastic. Just asked another client After setup & training So many problems, how they are enjoying on Friday, the meeting solved. Done. Love it. their new @Xero
Slide 35: Outlook
For personal use only Outlook Sankar Narayan Chief Financial Officer 35
Slide 36: Outlook
On track for full year subscription revenue of NZD$200 million based on June 2015 FX rates For personal use only Operating metrics are expected to improve as Outlook the Company continues to drive efficiencies through automation and economies of scale Focused on containing full financial year cash out
Slide 37: Q&A
37 For personal use only Q&A
Slide 38: Appendix: definitions
Appendix For personal use only ACMR Annualised committed monthly revenue represents monthly recurring revenue at 30 September multiplied by 12. Accordingly, it provides a 12 month forward view of revenue, assuming that any promotions have ended and other factors such as subscribers, pricing and fore
Slide 39: Beautiful accounting software
For personal use only Beautiful accounting software www.xero.com